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Yellen's swan song to markets

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(Reuters) - Janet Yellen soothed markets' anxieties even while unwinding her predecessor's emergency measures to combat the 2007-2009 global financial crisis during her tenure as the first woman to lead the U.S. Federal Reserve.

Yellen chairs her final Federal Open Market Committee meeting on Wednesday, with the group expected to leave interest rates unchanged. She had led the Fed since February 2014.

An uneventful reaction to that meeting would be a fitting finale. Her Fed telegraphed its every move to withdraw stimulus, and it trained investors to not see the Fed as a threat to markets' prosperity.

As such, the Fed largely avoided a pullback of the sort that attended former chair Ben Bernanke in 2013 when he mentioned possibly reducing the Fed's bond-buying "quantitative easing" program.

Yet risk-taking has been rewarded. Equities sold off in late 2015 after the Fed's first hike since 2006, but the pain did not last.

Cautiously timed rate hikes reassured markets. Inflation was tame. Investors flocked to the United States for relatively high yields and stable economic prospects. And the Fed's balance sheet, despite shrinking, remained hefty. So volatility dipped and stocks leapt.

Financial conditions eased as stocks gained during Yellen's term, leading some to wonder whether hikes were enough to "pull away the punchbowl" and prevent the economy's overheating. The S&P 500 gained 62 percent, or 76 percent on a total return basis, including dividends, during her tenure, and investors talked about a Yellen "put" guaranteeing the Fed would stabilize markets.

Well-received rate hikes nonetheless paved the way for what economist Mohamed El-Erian has called a "beautiful normalization" of monetary policy.